Ofgem seeks move to ‘principles based’ regulation

Ofgem is seeking a move towards principles based regulation, chief executive Dermot Nolan told delegates at today’s Utility Week Congress.

Nolan said the regulator, which has come under fire for the unintended consequences of its market interventions, wants to move away from prescriptive regulation to a regime that focuses on treating customers fairly.

He said: “I want to see a smaller license in the future, with the underlying principle of treating customers fairly. That’s the ground we want to go to over the next couple of years.”

In a question and answer session that followed his presentation, Nolan said: “There would be a general duty to treat customers fairly – the regulator would not be overly specific. You are placing the burdens on suppliers themselves to think about [what that means].”

Nolan’s comments were welcomed by fellow panellists Ian Peters, managing director of British Gas residential and Neil Clitheroe, Scottish Power’s chief executive, retail and generation.

However, Clitheroe asked: “Does that principle hold when something goes wrong? What’s the response to that?”

Clitheroe also questioned what would happen to the current detailed regulation under such a regime.

Nolan replied: “I would like to see the direction of travel where if we feel the reliance on Standards of Conduct is sufficient, we would remove that detail.”

Ofwat chief executive Cathryn Ross, also on the panel, said: “I very much agree with principles based regulation. The way to square that circle is through precedent –being very clear on how and why you are acting on the principles set out, and having that conversation with the sector.”

Principles based regulation, and the Treating Customers Fairly, regime, are well established in financial services.